On December 31, 2016, Bart Inc. purchased a machine from Fell Corp. in exchange for a noninterest-bearing note requiring eight payments of $20,000. The first payment was made on December 31, 2016, and the remaining seven payments are due annually on each December 31, beginning in 2017. At the date of the transaction, the prevailing rate of interest for this type of note was 11%. Present value factors are as follows:
|
Period
|
Present value of ordinary annuity of 1 at 11%
|
Present value of an annuity due of 1 at 11%
|
|
7
|
4.712
|
5.231
|
|
8
|
5.146
|
5.712
|
The initial value of the machine is
$114,240
$104,620
$ 94,240
$102,920